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Understanding Down Payments and Deposits

Buying a home can be a complex financial journey. If you plan to get a mortgage, you’ll hear about the need for a down payment, but your REALTOR® will also mention a deposit.
Are these two terms the same? Let’s clarify the difference between a deposit and a down payment and their impact on your path to homeownership. Whether you’re a first-time buyer or looking to refine your strategy, grasping these concepts will help you make informed decisions and succeed in the housing market. Let’s dive in! 


What is a down payment? 

A down payment is the amount of money a buyer must provide independently of the mortgage loan. Sources for a down payment can include: 

Savings 
Investments 
Gifts from family*
Borrowed funds** 

*Note: If using gifted funds, the lender requires a gift letter. The funds should first be deposited into the buyer's account before being used as a deposit or down payment. Inheritance funds come with different requirements that depend on the lender. 

**Note: In some cases, lenders may allow borrowing against personal lines of credit or other properties. 


How much should I save for a down payment? 

In Canada, most lenders require a down payment of 20 per cent of the purchase price. However, insured mortgages allow for down payments as low as 5 per cent. While the minimum down payment is 5 per cent, lenders typically expect an additional 1.5 per cent saved to cover legal fees and other associated costs, including: 

Appraisal fees 
Home inspection fees
Title insurance 
Why do I need to give a deposit when making an offer? 
A deposit is not the same as a down payment and usually doesn’t constitute the entire down payment amount. It serves as a security measure for the seller, ensuring that if the buyer does not complete the purchase, the seller is compensated for their potential loss. In short, your deposit signals to the seller that your offer is serious. 


Does my deposit count toward my down payment? 

Yes, it does. However, the lender will need to track a 90-day history of where the deposit originated in addition to the down payment. For instance, the lender will request 90-day bank statements from the account where the deposit is held. They will need to see a record of the deposit leaving your account (as part of the down payment) and a record of the selling brokerage receiving the deposit. 


How does my deposit contribute to my down payment? 

When your file is conveyed at the law office, the lawyer will request the deposit from the seller’s brokerage. This deposit will then be included in the total purchase funds. 

Now that we've clarified the differences between down payments and deposits let’s explore some scenarios, starting with Ideal Camille. 


Scenario 1: Ideal Camille 

Imagine Ideal Camille, who, with the assistance of her REALTOR®, finds a home listed at $400,000. For a 20% down payment, Camille has saved $80,000 for which she can provide her lender with a 90-day transaction history. She is pre-approved for a mortgage to finance the remainder of the purchase. 

To strengthen her offer, Camille and her REALTOR® include a $20,000 deposit. Once the seller accepts the offer, Camille delivers the deposit to the seller’s brokerage and receives a Receipt of Funds. She then provides her lender with confirmation that the deposit has been received by the listing brokerage. This ensures the lender recognizes that $20,000 will be applied to her $80,000 down payment. 


Scenario 2: Gift Cliff 

Not every transaction is as straightforward as Ideal Camille’s. Take Gift Cliff, who is eager to purchase a $300,000 home. He receives a $15,000 down payment gift from his father, which is only 5% of the purchase price, necessitating an insured mortgage. Excited about the home, Cliff instructs his REALTOR® to include the entire $15,000 as a deposit in his offer. 

Once his offer is accepted, the $15,000 deposit is sent to the selling brokerage. Cliff must inform his lender that his down payment will come from this deposit and advise that the deposit was received by the listing brokerage. He also communicates to his lender that the deposit was a gift from his father, prompting the lender to request a gift letter and outline the necessary details for the letter. 


Down payment and deposit pro-tips: 

If any portion of your deposit or down payment is a gift or borrowed, consult your mortgage broker regarding the lender's policies on these funds. Some lenders accept gifted funds from anyone, while most require them to be from a direct family member. 

Lenders are becoming stricter about tracking the source of funds for down payments. Be prepared to provide at least 90 days of financial history for all funds used for your deposit and down payment. 

Avoid transferring large sums in and out of the account, instead holding your down payment during the purchasing process. Any large transfers must have complete records detailing where the money came from, where it’s going, and why. Due to Canada’s strict anti-money laundering policies, it's essential to maintain clear documentation of transactions. The best practice is to keep your down payment in a separate account designated solely for your home purchase. 

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Things You Can and Can’t Negotiate When Buying a Home

You probably already know you can negotiate the price of a home when making an offer to purchase, but many other things can save you time or money before you take possession. However, there are also several things you should never ask a seller for—unless you want to tank the sale. Here are four things you might want to negotiate for, and a few you should never bring up.
 

Appliances or other non-permanent items in the house 

Sometimes, sellers will itemize furnishings and personal property they plan to take with them, excluding them from the sale. But often, if you fall in love with something in the house, you can try to negotiate that into the agreement.

The typical things people put in contracts would be appliances, window coverings, a hot tub, pool equipment or patio sets. Buyers can also ask for things like the pool table, freezers, and believe it or not, livestock if it’s a rural property. Sometimes, sellers let us know that things are available.

You might want to skip asking the seller to throw in the antique dining room chandelier or other one-of-a-kind items, though. Chances are the owners will take the most valuable and sentimental items with them when they move.
 

Closing dates and leasebacks 

It’s very common for buyers to negotiate an occupancy date that works for them, regardless of what the home listing says. 

Some want a long possession time, others a short possession time or the sellers rent back the property from the buyers temporarily until the property they purchased is ready(rare but does happen).

However, if the sellers need a super quick sale because they’re leaving the province or country, don’t ask for a move-in date six months from now, or you might talk yourself right out of the deal.
 

Cleaning up and clearing out 

If you notice there is a pile of scrap metal in the backyard, or that the basement is crammed with junk, you might want to include a note in your offer that you expect the property to be cleared out before you take possession. While we can assume that people will clean out their homes or property, adding a term in the contract to make sure this happens is good practice.

With specific types of cleanings, there could be a holdback on the contract to ensure the home is cleaned to a certain standard and then that’s paid out at the end of the deal once it’s certified everything’s done properly. And while it would be great if the sellers left you a sparkling clean house when they leave, you can’t really ask them to do that.
 

Minor repairs

Asking for certain cosmetic fixes such as touching up ceiling paint after water damage was repaired or getting the sellers to replace a non-functional doorbell before you get the keys is often acceptable. So is anything that concerns the safety of the property or issues a home inspector might find.

If it’s a latent defect—something you don’t see that the inspection reveals—like a crack in the foundation, something wrong with the gas in the mechanical room, a leaking appliance, a cracked heat exchanger, or a missing hand railing on the set of stairs, you can ask for those to be repaired because they are safety issues.

You can also ask for a discount on the price if you discover the roof is in poor shape. But don’t bother asking the sellers for a complete kitchen renovation or to gut a bathroom—that won’t happen.

No matter what you want to negotiate for, your REALTOR® will help negotiate the price and contract terms on your behalf. Everyone’s home-buying experience will be different, and your negotiations will be dependent on your personal situation.

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Welcome to the Real Estate Blog

Welcome to my Real Estate Blog! Here you can find timely updates on the real estate market, best practices for buying and selling, home maintenance, and much more.

Whether you are interested in buying or selling real estate, I am here to help guide you every step of the way.

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Data is supplied by Pillar 9™ MLS® System. Pillar 9™ is the owner of the copyright in its MLS®System. Data is deemed reliable but is not guaranteed accurate by Pillar 9™.
The trademarks MLS®, Multiple Listing Service® and the associated logos are owned by The Canadian Real Estate Association (CREA) and identify the quality of services provided by real estate professionals who are members of CREA. Used under license.